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Charles Lieberman, the founder of Advisors Capital Management, has developed a successful equity-oriented strategy that is geared toward investors at or near retirement and designed to provide generous income.

That approach, called "income with growth," uses a mix of publicly traded securities, including master limited partnerships, real-estate investment trusts, and high-dividend stocks to construct portfolios that provide a yield to investors after fees of about 5.5%. This strategy has returned 7.8% annually since 2001, ahead of a 4.3% yearly increase in an 80/20 blend of stocks and bonds. The goal is to find stocks whose dividends will increase over time and therefore allow an investor to preserve principal during retirement. "Income with growth" is one of six strategies employed by Advisors Capital Management, a Hasbrouck Heights, N.J., firm that now runs more than $400 million.

Lieberman, 64, was a leading economist at banks such as Manufacturers Hanover in the 1980s and early 1990s; he later teamed with Salomon Brothers' noted economist Henry Kaufman to form a hedge fund before launching Advisors Capital in 1999. As an economist, Lieberman appeared regularly in Barron's.

"I'm fearful that rates are going to rise...and create one of the largest bear markets in bonds in a long time." -- Charles Lieberman
Peter Murphy for Barron's

Fearful of a sharp rise in rates, Lieberman generally is steering clear of Treasuries, mortgage securities, municipal bonds, top-grade corporate debt, and preferred stock. He believes that the housing recovery has a long way to go, and he has identified stocks he calls "twofers" that should benefit from a better housing market and continued low natural-gas prices.

The firm manages client money in separate accounts. It has no mutual fund. It takes investments as little as $100,000, although portfolio customization requires a $250,000 minimum. For more on the firm's distinctive approach, read on.

Barron's:How is the firm run?

Lieberman: Our strategies are based on client objectives and risk tolerance, not Morningstar-style boxes like value or growth, or small-cap or large-cap stocks. We don't care about style boxes because clients don't care. They just want the asset value to go up, and so we organize our portfolio offerings from "growth" to "growth with income" to "income with growth" to "fixed income," to give clients a spectrum to choose from based on their risk tolerance and objectives.

How many securities are in each client portfolio?

Anywhere from 30 to 50. We buy individual securities and avoid the fees associated with mutual funds or exchange-traded funds. With ETFs, you get a whole gamut of securities—the good, the bad, and everything in between. What we try to do for clients is pick the best and avoid the worst.

What's your annual fee? Is it around 1%?

It's a bit more than that for smaller accounts, and it can be less for large accounts. We are less expensive than most mutual funds, even though we effectively are creating a personalized, tailored mutual fund for each client. There is no commission on our transactions. We are not a brokerage firm. We don't get paid by anyone other than the client, so our entire focus is on the client. We, in fact, are on roughly 25 broker/dealer platforms, including Fidelity's.

The portfolio has income as its primary objective. Growth of that income and growth of the value of the portfolio are secondary objectives. So, the universe of investments includes master limited partnerships, real-estate investment trusts, preferred stock, bonds, and dividend-paying common stock.

What do you like now?

We consider MLPs to be one of the most attractive income-producing areas right now. We like
BreitBurn Energy Partnersbbep -0.5405405405405406%BreitBurn Energy Partners L.P.U.S.: NasdaqUSD5.52
-0.03-0.5405405405405406%
/Date(1427829799440-0500)/
Volume (Delayed 15m)
:
1706759
P/E Ratio
2.358931623931624Market Cap
1170667088.87691
Dividend Yield
18.109023714197722% Rev. per Employee
949856More quote details and news »bbepinYour ValueYour ChangeShort position
[BBEP], an oil and gas producer. Gas prices are very low, but the company has locked in a lot of its future revenue by hedging. Like many producers, it's shifting production to oil from gas. When BreitBurn buys oil and gas properties, it tends to hedge future production out to as far as three to four years. So there's a lot of visibility to the earnings stream, and that gives us confidence in the yield, which is 9.6%.

The popular parts of the REIT space, including shopping malls and apartments, have been bid up by investors desperate for yield, and they no longer look attractive. We have turned to some of the more esoteric parts of the REIT universe to get a little more yield. We like
Sun CommunitiesSUI -0.7149240393208222%Sun Communities Inc.U.S.: NYSEUSD66.66
-0.48-0.7149240393208222%
/Date(1427829772890-0500)/
Volume (Delayed 15m)
:
95856
P/E Ratio
112.96610169491525Market Cap
3589640077.6123
Dividend Yield
3.9009752438109526% Rev. per Employee
309295More quote details and news »SUIinYour ValueYour ChangeShort position
[SUI], which operates mobile-home parks and yields 6.1%. It's a little like an apartment play because many people forced out of single-family homes during the recession ended up in mobile homes. There are very few mobile-home-park operators.

Mortgage REITs yield a lot now as their share prices have come down. Any favorites?

We like
American Capital Agency
[AGNC]. The yield is about 16%. The company hedges a lot of the interest-rate risk in its portfolio, and it's more selective than other mortgage REITs about the mortgages it buys. The result is that its prepayments have been lower than others in the industry, and its cash flows have held up a lot better.

Is the dividend sustainable?

The stock is priced as if the dividend is going to be cut in half. The dividend should largely remain in place until the Federal Reserve is ready to start raising interest rates, and at that point we would be looking to get out.

The housing story remains underappreciated in the stock market. This is where having an economics background has been an enormous benefit. What many people don't realize is that most housing demand comes from household formation, and that was severely constrained in the recession when kids couldn't get jobs out of school and moved back home with Mom and Dad. As a result, there is a tremendous backlog of household formation, which should run at roughly 1.4 million per year. So we've got a lot of catch-up to go with housing demand, and there are still a lot of housing opportunities. Another one of our investment themes is cheap natural gas, which is helping many U.S. manufacturers. One twofer is
Trextrex 3.481495612361694%Trex Co. Inc.U.S.: NYSEUSD54.245
1.8253.481495612361694%
/Date(1427829805019-0500)/
Volume (Delayed 15m)
:
268500
P/E Ratio
42.669291338582674Market Cap
1678488365.3656
Dividend Yield
N/ARev. per Employee
621683More quote details and news »trexinYour ValueYour ChangeShort position
(TREX), which makes composite-wood decking. Natural gas is a critical element in the production process.

Where does it trade?

The stock is up dramatically, and we have owned it for a while. It has gone from the upper single digits to almost $40, but it's still attractive. The company is operating at a low rate of capacity utilization. The Street consensus for 2013 is $2.41 a share. We think there is at least $6 per share or more of annual earnings potential a couple of years from now.

Give us another twofer.

Georgia Gulf
[GGC]. It makes PVC plastic piping, which is used in housing construction. So it's a play on the housing market, and natural gas is an important element in the production process. So we get the benefit of both investment themes working on our behalf.

How is it valued?

It's now around $45. The consensus earnings estimate for this year is about $4.75, but Georgia Gulf has $6 or $7 a share in earnings power within a few years.

Do any of the major home builders appeal to you?

NVR.
nvr -0.398355754857997%NVR Inc.U.S.: NYSEUSD1332.67
-5.33-0.398355754857997%
/Date(1427829610249-0500)/
Volume (Delayed 15m)
:
16139
P/E Ratio
20.717618894931654Market Cap
5434955729.48456
Dividend Yield
N/ARev. per Employee
1126650More quote details and news »nvrinYour ValueYour ChangeShort position
It's a Middle Atlantic-based home builder that managed to remain profitable right through the credit crisis because of its differentiated business model. Most home builders buy land and then inventory it until they are ready to build. NVR options land. It pays an option fee to the landowner for the right to be able to buy the land at a later date. It doesn't have as much capital tied up in land inventory. That flexibility served the company well during the credit crisis, because it didn't have massive write-downs of land inventory.

Obviously, the housing market is recovering, and so is NVR's business. It has tremendous cash flow, and because NVR doesn't have to inventory land, it has been able to buy back stock [NVR]. The share count has shrunk dramatically over the course of many years.

The stock trades close to $1,000. It's expected to earn about $50 a share this year. What kind of earnings power does it have?

North of $100 a share a year or two out.

What do you think about the bond market?

Our fixed-income portfolios are almost devoid of Treasuries and mortgage securities, and we have minimal holdings of munis and high-grade corporates. Our whole strategy is to trade off interest-rate risk for credit risk. We want to minimize interest-rate risk, and we are willing to accept more credit risk. If the economy does well, credit spreads should continue to tighten.

How are your bond accounts invested?

Largely in double-B and triple-B corporate bonds with short maturities in 2013, 2014, and 2015. The average maturity of our fixed-income portfolios is less than 2½ years. I'm very fearful that interest rates are going to rise significantly in the next few years, and create one of the largest bear markets in bonds in a long time. Interest rates obviously are at historic lows, and that's unsustainable. As the economy improves and unemployment reverts to more normal levels, the fed-funds rate could rise to 4%. In that environment, the 10-year Treasury could easily yield 5% or 6% [it now yields less than 2%], and the rest of the bond market would trade off that.

So, all the bonds that people are looking at today have the potential to decline pretty dramatically in value over the next couple of years.

That's a pretty bearish scenario. How would you sum up your strategy?

We are a "world cap" manager. The world is our oyster. We can go everywhere, look at any investment, as long as it makes sense and we are comfortable with the risk.